Outsourcing trends for 2007

Michael Alan Hamlin

Posted on December 30, 2006

The Philippines needs to think about the substance and form of its brand

Last week, Accenture announced it was raising its earnings outlook on the strength of strong fiscal first-quarter sales ending November 30. Overall, revenues increased 14% to $4.75 billion, while net income jumped 32% to $284.2 million. These results are interesting in part because outsourcing sales were the second-largest source of income, increasing 16% to $1.84 billion. Consulting, the firm’s largest revenue source, increased 13% to $2.91 billion.

Accenture has approximately 7,000 employees in the Philippines (India has more than twice as many.), and so the results also suggest that the firm will continue to generate relatively high-paying jobs here at an impressive rate. In fact, Accenture has separately announced that it will continue to expand its employee base rapidly in China, India, and the Philippines.

In the communications war for mindshare, however, the Philippines is beginning to lose ground following a year of mostly positive news and strong growth. A recent visit to the InformationWeek outsourcing section on the magazine’s website showed stories on: 1) China’s challenge to overtake India as the world’s top outsourcing destination; 2) Malaysia as an attractive alternative to India; 3) India’s largest outsourcing deal ever; 4) a new Accenture software lab in India; and 5) IBM plans to expand there. There was no mention of the Philippines.

The top story was China’s challenge to India. According to the report, “the Chinese government has earmarked 10 cities in the country for development as major outsourcing centers.” The effort is an attempt to increase China’s share of technology work outsourced to low-cost destinations. The cities targeted include Shanghai, Dalian, Shenzen, and Chengdu, according to a report by China’s official news agency, Xinhua.

Each of these cities are already fast-growing economic zones. But because industries that help account for that growth, particularly electronics and semiconductors, are themselves moving to cheaper locations in Vietnam, Laos, and Cambodia, China needs to foster new employment generators to sustain growth and keep the country and its one billion citizens moving up the value chain.

Although China has substantial hurdles to address, particularly language and cultural affinity issues, it is likely to succeed in its effort to claim a larger share of the outsourcing market, particularly in technical areas such as software development and tech support. Indeed, there are many reasons why it will succeed. They include strong government commitment, excellent educational infrastructure, and a clear understanding of how effective communications contributes to investor momentum.

Chinais not alone in this respect. India – and more specifically the National Association of Software and Services Companies (NASSCOM) – has leveraged regular distribution of information to global investors, government officials, and media to achieve and sustain awareness of India’s software and outsourcing services providers. Malaysia, Thailand, and Vietnam – which have all successfully promoted tourism and business opportunities with the aid of slick communication campaigns, are following India’s example to promote their fledgling outsourcing sectors, too.

The Philippines, sadly, is a different story. Although it has enjoyed seven years of dramatic growth in the outsourcing industry – creating hundreds of thousands of direct and indirect jobs and exports of approximately $2.5 billion in the process – it continues to allow alternative investment sites to manage and control the communications agenda. And if it continues to do so, the Philippines’ fastest-growing investment sector will become further eclipsed by its competitors.

Naturally, effective communications is not the only factor at play. Just as competitors like China and Vietnam are announcing new support for investors in outsourcing services, the Philippines is publicly debating whether it should dramatically trim incentives provided to investors. In the area of educational infrastructure, China is relentless in its pursuit of widespread English-language fluency, down to taxi drivers and restaurant waiters.

As 2007 approaches, it is important for the Philippines to think about both the substance and form of its attractiveness to investors. Substance has to do with such things as sustaining high-quality, competitive telecom infrastructure, lowering the cost of power, improving educational infrastructure, reducing red tape, and providing a competitive incentive framework.

Form is how the Philippines communicates its attributes. It involves distributing a steady stream of information to those involved in the industry, including investors, government officials, and media. That’s achieved through public relations: doing research, disseminating results, and making personal follow-ups to make certain the information is received and understood by influential sectors and individuals.

Doing these things will make a significant difference – perhaps the difference – in whether the Philippines benefits from outsourcing trends in 2007 and beyond. Ignoring them will compromise the Philippines’ best bet for sustained and rapid job creation.